Sales Tax Audit Risk in New Jersey: What the SKIMS Settlement Teaches Online Sellers
A recent New Jersey sales tax enforcement action involving SKIMS, Kim Kardashian’s apparel brand, is a reminder that even well-known companies can stumble into serious sales tax audit exposure. The company agreed to a settlement with the New Jersey Attorney General after collecting New Jersey sales tax on clothing that should have been exempt, resulting in penalties and required customer refunds.
While the headlines focus on the celebrity angle, the real story is a familiar one for state tax professionals: misapplied sales tax rules, automated system errors, and enforcement that escalates quickly.
Understanding the New Jersey Sales Tax Clothing Exemption
Under New Jersey sales tax law, most clothing and footwear are exempt from sales tax. This exemption applies to in-state and remote sellers alike, including ecommerce companies shipping products into New Jersey. Unlike states with partial or conditional exemptions, New Jersey’s clothing exemption is broad and well established.
In the SKIMS matter, the company’s system treated exempt clothing sales as taxable, collecting tax from New Jersey customers over multiple years. According to public statements, the issue was attributed to a “technical error” in sales tax collection software. From a legal perspective, however, how the error occurred is far less important than the fact that New Jersey sales tax was collected improperly.
That distinction is critical during a New Jersey sales tax audit.
How Sales Tax Issues Turn Into Audits and Enforcement
Many sales tax problems start quietly, with a notice, questionnaire, or data request, but can quickly escalate into a formal sales tax audit or investigation when states identify systemic errors.
Common audit triggers include:
- Incorrect application of New Jersey sales tax exemptions
- Over-collection or under-collection of tax
- Inconsistent reporting across states
- Ecommerce and marketplace sales mismatches
- Automated tax engine misconfigurations
Once an audit begins, the focus shifts from compliance to defense, and businesses may face assessments, penalties, interest, and refund obligations.
From Sales Tax Audit to Appeals and Litigation
In higher-profile or higher-dollar cases, sales tax audits can evolve into administrative appeals or sales tax litigation. When exemptions are denied, sourcing rules are misapplied, or penalties are assessed incorrectly, businesses must decide whether to challenge the state’s position.
At Sales Tax Helper, we regularly represent clients in:
- New Jersey sales tax audits
- Audit defenses and examiner disputes
- Sales tax appeals and protests
- Administrative hearings
- Sales tax litigation when disputes cannot be resolved at the agency level
The SKIMS settlement demonstrates that New Jersey takes sales tax compliance seriously, and that enforcement is not limited to small or unsophisticated businesses.
Sales Tax Compliance Is Not “Set It and Forget It”
One of the most important lessons from this case is that sales tax compliance requires ongoing oversight. Automated systems are helpful, but they do not replace legal analysis of taxability, exemptions, and state-specific rules.
What is taxable in one state may be fully exempt in another. For businesses selling nationwide, that difference creates real risk—especially in states like New Jersey that actively audit remote sellers.
How Sales Tax Helper Protects Your Business
Sales Tax Helper provides both preventive sales tax compliance services and aggressive controversy representation when issues arise.
Our services include:
- New Jersey sales tax compliance reviews
- State-by-state taxability and exemption analysis
- Nexus and registration evaluations
- Voluntary Disclosure Agreements (VDAs)
- Sales tax audit defense
- Sales tax appeals and litigation
Whether you are trying to avoid a New Jersey sales tax audit, or are already facing one, we help businesses manage risk, reduce exposure, and push back when assessments are wrong.
The Bottom Line
If a billion-dollar brand can misapply a basic New Jersey sales tax exemption and face enforcement, any growing ecommerce business can. Sales tax errors are rarely harmless, and they are increasingly visible to state tax authorities.
At Sales Tax Helper, we combine deep sales tax compliance knowledge with real-world audit, appeals, and litigation experience. If you are concerned about New Jersey sales tax, a potential sales tax audit, or an ongoing dispute, now is the time to act, before the issue escalates.